Accounting Tricks of the Trade
IN-PROCESS R&D CHARGES
Taken by the buyer at the time of an acquisition, these charges represent the estimated value of R&D at the purchased company. Because it is still ''in process,'' the research is not yet commercially viable. Since it may prove worthless, it can all be written off. But by separating the expenses from revenues that might be gained in the future from the R&D, future earnings can get a big jump.
POOLING
A method of accounting for mergers and acquisitions that eliminates goodwill charges. All assets and liabilities of the companies are combined at book value, so there's no goodwill to depreciate. That boosts earnings, one reason use of pooling has exploded.
RESTRUCTURING RESERVE
Created by combining several years of expected future expenses and writing them all off at once as an ''extraordinary'' one-time charge. This jacks up future earnings.
REVENUE RECOGNITION
How quickly or slowly revenue is booked. It is especially important in industries such as software, where service contracts and upgrades can stretch revenue out for years. Booking revenues too early provides fertile ground for inflating sales and earnings.
RELATED ITEMS
 - CORPORATE EARNINGS: WHO CAN YOU TRUST?
- COVER IMAGE: Corporate Earnings: Who Can You Trust?
- EARNINGS HOCUS-POCUS
- TABLE: Accounting Tricks of the Trade
- CHART: Earnings: Now You See 'Em, Now You Don't
- WHERE ARE THE ACCOUNTANTS?
- TABLE: Fixing the System
- WALL STREET'S SPIN GAME
- CHART: The Bull Market in Analysts
- CHART: Sell? Who Said Sell?
- THE SUPERSTAR WHO WEARS TWO HATS
- HELP FOR INVESTORS
- TABLE: Net Assets
- ONLINE ORIGINAL: WHAT EVERY INVESTOR SHOULD KNOW ABOUT STOCK ANALYSIS
Return to main story
| 
